Adventures with lyrical - buying a business

27 with a graduate degree. I work at a university though, so I have access to the university library. I"ve actually got a couple of reference books on order that should pop into my mailbox sometime this week.

I say I"m not in a position financially to make a jump because I just bought a house a year ago, I"m paying a student loan, etc. I"ve got to get those ducks in a row first, and I need time to learn the necessary business skills. I"m really wishing I would have taken the extra year to double up and get an MBA while I was in grad school, but I didn"t know about the program until the semester I graduated. It"s possible I could go back and finish in a fairly short number of hours, but it would be a hard sell for my job (the school will pay for classes if I can sell it as part of my current career).

If you read this guys site, he says you don"t "need" an MBA. It"s got a ton of pretty interesting information. Basically, he says everything you need to know, you can learn on your own.

The Personal MBA: Get a World-Class Business Education


I don"t know what your personal financials are, but if you can"t come up with cash-money for 20% of what you want to borrow, I wouldn"t even plan on a bank talking at all.

When it comes to banks, they really only care about your ability to repay, the loan to value ration of what you"re buying against what you"re borrowing, and the cashflow to make the payments.

The banks got burned by loaning out too much money without taking enough collateral, and they just aren"t doing it anymore.

So say, you find a building that suits you, and it"s 300,000. Then, you price out all the equipment you need to run a brew-pub (I presume you"ll have a bar and some seating?). Let"s say that"s another 200,000.

So you"re into it 500,000. But, you"ll need money to buy all of your supplies, inventory, and your payroll for the first few months. So that"s another 100,000.

So, you figure you can open this brew-pub for 600,000 (even if it"s not a pub and just the brewery). The banks are going to look at this and say:

"We will loan you $240,000 for your building. We will be in first mortgage posistion on your building, and we expect you to come up with the remaining $60,000 out of your pocket. We will also loan you $80,000 for your equipment, and expect you to come up with $120,000 out of your pocket. We will not loan you any startup, inventory or payroll."


So now, to open your $600,000 dollar endeavour, you need $280,000 cash out of pocket. That"s just a ballpark scenario where they are going
1) 80% LTV on real estate
2) 40% LTV on equipment (this could be higher if brewing stuff has a stable value)
3) Nothing on liquid startup and operating budget.


It"s pretty daunting. It used to be, banks would loan you alot more, but they got burned. So now, they"re sticking with the "20% down" pretty hard, so if they have to repo it, they don"t go backwards. And any money they lend that isn"t collateralized with something, they MIGHT do a personal guarantee, where basically you sign that your home, car, personal property... that all guarantees the loan.

I have a SBA loan for 16k that has no collateral other than my Personal Guarantee, which means I said I"d let them repo/sell anything I personally own if my business can"t pay it"s bills. They gave me this SBA in 2007 for 25k just on my personal guarantee and my business cashflow, I had no assets.

Today, that SBA program doesn"t even exist and they"d never, ever make that loan to me now, even though I make more money and have more assets.

The first thing a lender asks nowdays is "When this guy fails, what can I repo and sell to get my money back?" Real estate is best, expensive equipment is second best. Tables, chairs, printers... all worthless.

You can basically decide what you can borrow by what you can come up with in cash. And by cash, I just mean non-bank loans. If you can convince grandma to loan you 50k, you can use that as "cash" for the down payment, but borrowing 80% from a bank, and 20% from a private party still puts you at 100% leveraged and pretty much fucked in the event of a mishap.

I know it sounds like I"m trying to talk you out of it, but I"m not. The opposite in fact. I am involved in this process right now, and it"s just one butt-fuck after another.

But, there"s nothing better than owning a successful, profitable business.

Yup, that all sounds pretty spot on from what I"ve learned so far. It"s very daunting, which I guess is why more people don"t own their own businesses.

As for an MBA, I"m sure a lot of it can be learned on your own. I only mention it because I had a good opportunity to get one in about an extra year, and I didn"t learn about it until it was too late.

What business are you opening Zeste?

DisgruntledOrangatang said:

What business are you opening Zeste?

Click to expand...

Well, I am still pretty far off from "starting" a business. It"s just something me and my friend are exploring.

Basically, the plan is for me to buy this building at a steal, it"s a bank foreclosure. Then, I lease the building to my partner, who starts a restaurant in it. I also own 50% of the restaurant business.

My partner is a restaurant guru and has already opened a successful place which is still doing great. Our problem is that while I can get approved for the building purchase, he/we aren"t finding a dime of venture capital to blow on equipment, inventory, and payroll.

There"s very little chance we"ll be able to do it, the economy is just too tight, and neither of us have any liquid cash. But it"s a invigorating process and really educational.

I guess I too am in the same boat. I"m open to critiques but this is just the plan I got one day. A friend and I are forming an LLC, then applying for a federal fire arms license all from home. The plan is to start off small, doing transfers and occasionally selling guns on order for $25-$40 above dealer cost. Obviously at this rate we won"t be netting 305k this year or anytime soon, but to generate some side income with next to no overhead would be pretty nice. Total cost would be less than $500 split two ways.

Heylel Teomim said:

My dad and my uncle both own their own businesses, so I"ll be asking them about the process as well. It"s something I"ve wanted to do for a long time (be self-employed), I just never really found a niche for something I could do all the time without it not feeling like work until recently. It may sound strange, but I"d really like to open a craft brewery.

I don"t have hard numbers, but it"s definitely the sort of business that would require considerable assets. I"m also not sure how difficult it is to get started in my state since Georgia has some very draconian laws about distribution of alcohol that tend to favor established businesses. It *can* be done, and has been quite successfully by a couple of companies (Sweetwater, Terrapin, etc), but start ups get caught in a catch-22 of not being able to distribute without a distributor, and no distributor will give you the time of day because you"re known well-known.

Like I said, I"m just looking into it recently, and it wouldn"t be for a couple years before I could wrangle the cash together for very much. I just want to learn more about it.

Click to expand...

Where have you been reading about opening up breweries? I thought one of the homebrew forums had a section dedicated to people going commercial but I can"t find it now. I seem to remember a thread awhile ago about some dude who just started out of his house in a 45 gal fermenter or something and slowly got all the licenses and labels worked out. This is something I"ve thought about doing for awhile, but I want to graduate first. If only so I have the spare capital to increase my capacity.

It"s possible to do that in some states but not others. Georgia has fairly strict three-tier laws preventing a brewer from selling directly to retailers or the public. You have to go through a distributor; the basically have legal monopolies. Getting a distributor to talk to you when your volume is low is pretty much impossible. There"s been a lobby to change the laws in Georgia for some time, but it isn"t likely in the near future. Hell, we just gained the ability to buy >6% beers in the last couple of years. Before that they were illegal.

Heylel Teomim said:

It"s possible to do that in some states but not others. Georgia has fairly strict three-tier laws preventing a brewer from selling directly to retailers or the public. You have to go through a distributor; the basically have legal monopolies. Getting a distributor to talk to you when your volume is low is pretty much impossible. There"s been a lobby to change the laws in Georgia for some time, but it isn"t likely in the near future. Hell, we just gained the ability to buy >6% beers in the last couple of years. Before that they were illegal.

Click to expand...

Yeah Kentucky is like that as well. There are a few distributors in the city but I"m not sure at all how open they are to stocking incredibly low quantities. Keep us posted as your figure out more, that sounds like pretty rough odds.

I also found this resource when I was looking around:Home Brew Forums - Registration

Heylel Teomim said:

It"s possible to do that in some states but not others. Georgia has fairly strict three-tier laws preventing a brewer from selling directly to retailers or the public. You have to go through a distributor; the basically have legal monopolies. Getting a distributor to talk to you when your volume is low is pretty much impossible. There"s been a lobby to change the laws in Georgia for some time, but it isn"t likely in the near future. Hell, we just gained the ability to buy >6% beers in the last couple of years. Before that they were illegal.

Click to expand...

Utah can only sell 3% beers in grocery/convenience stores.

For anything stronger, liquor included, you have to go to the state-run liquor stores. But, they can"t sell any out of state domestic beers, so there"s not a single Bud Light in the state that is more than 3%. There are alot of imports and Utah beers that are 6% and up, but again, you can only get those in the liquor stores and bars. And there"s MAYBE 1 liquor store per county.




Were you planning on having seating for customers, and having some of your beers on tap? Or is this just a brewery and not a bar?

In my head, a brewery with a small "public" area for doing tastings and eventually a tour. The law draws a distinction between a bar, a brewery and a brew pub. Basically, a bar can purchase liquor and beer from distributors but is forbidden to produce their own. A brewery can produce beer, but can"t sell it to the public. A brew pub can do both, but there is a limit to the amount you can brew in a year, and you can only sell to customers on the premises and only in draft form. You can"t bottle anything, or distribute it to retail stores etc. You"re also required to sell beers from your competitors, you can"t just sell your house beer only. It"s all very draconian as a result of Prohibition decades ago.

The one thing breweries can legally do is open their brewery up to the public and build a tasting room. Under those circumstances, you can sell directly to the public and let them taste your product without a middleman. You can"t directly accept cash though, you can only provide tokens in exchange for admittance, which are then cashed in for drinks. Yes, it"s silly, but it also provides a great opportunity to build a community around your product.

A brew pub might be more feasible in that you can run your business on lower volume, but you"re basically opening two businesses at once: the brewery and the restaurant. Georgia also requires that a certain percentage of your sales come from food, so you"re quickly looking at a larger staff, kitchen requirements, and all the nonsense that comes with a restaurant that wouldn"t otherwise be part of a brewing operation. I know, without a shadow of a doubt, that I"m not cut out for all that. However, I haven"t discarded the thought entirely of looking for a partner who knows the restaurant side of things. That means splitting ownership and potential profits, but it also would mean bringing someone on board with real expertise who could potentially run a tight kitchen.

As I"ve said, this is still kinda forming in my head. I just know that I absolutely love brewing, I love hosting people, getting into the community etc. I"d jump at the chance to take all of that into business.

I don"t have hard numbers, but it"s definitely the sort of business that would require considerable assets. I"m also not sure how difficult it is to get started in my state since Georgia has some very draconian laws about distribution of alcohol that tend to favor established businesses. It *can* be done, and has been quite successfully by a couple of companies (Sweetwater, Terrapin, etc), but start ups get caught in a catch-22 of not being able to distribute without a distributor, and no distributor will give you the time of day because you"re known well-known.

Click to expand...

We definitely need more of these in town. Going to Portland really opened my eyes about how awesome having local breweries is.

On a somewhat related note to this thread, it"s a long shot, but has anyone ever tried getting a government small business grant (such asSBIR - Small Business Innovation Research) ? It"s a little unclear to me whether people that aren"t professors can get these things.

I"m paid for grant work in my current career. It tends to be money that gets funneled to non-profits for various pilot programs. I don"t think that means it can"t go to private enterprise, but typically it doesn"t.

I still really have to go back through this whole thread.

I"ll just say that in the last 3 months of 2009 and first 3 months of 2010 we lost about 300k. So don"t feel too bad! Thankfully we"ve picked up a couple large, long term projects that shouldn"t have much risk. The construction market is still slow here so we don"t have much mark-up on them, but like I said they"re large projects for established contractors and owners, so there shouldn"t be any surprises that send things sideways. *cross fingers*

Thankfully in April we made about 125k, mostly because we shipped a lot of equipment and materials to a couple projects and we were under-progressed up till then and caught back up.

Thread necro, but whatever.

Some friends of mine started a small business this year, and it"s been an eye opening experience for me. It"s a master"s class in what NOT to do when starting out.

They"ve opened a haunted house as an LLC alongside a separate prop company which is supplying their masks etc. It"s all out of pocket; they have no loans whatsoever. However, one of the partners has a... less than reputable income. Let"s just leave it at that.

Anyway, their actual product is fantastic. They"ve got an amazing haunted house that is reviewing extremely well and is making folks really happy. The problem is, they"ve invested ever last nickel into the site itself, leaving nothing back for the considerable payroll needs. They"re struggling to make their first check not because the business is failing, but because they didn"t run projections and realize how much money they"d need on hand.

In fact, they have no business plan at all. Not even a budget. I think one person"s mother is handling the accounting. I ended up taking on their HR administration as a personal favor, free of charge. It"s a huge mess, and they"re struggling because they didn"t spend the necessary time on all the boring details. That"s what happens when you put 4 artistic types together in a business with no management experience, I suppose.

My roommate and I are just now getting into serious discussions of opening a bar. We"ve seen some of the obvious pitfalls, and are hoping to avoid the same mistakes. A brewpub is just too expensive, but I have a legal-type friend looking into some other options for me, such as hosting homebrew competitions etc. If we can find ways to factor something like that in, we"ll have tapped into a very large and underserved market.

So, time will tell. I may post in this as we go through the paces. Lyrical, your thread is really helpful. Glad you started it.

Heylel Teomim said:

they"ve invested ever last nickel into the site itself, leaving nothing back for the considerable payroll needs. They"re struggling to make their first check not because the business is failing, but because they didn"t run projections and realize how much money they"d need on hand.

In fact, they have no business plan at all. Not even a budget.

Click to expand...

Fuck man, that is sad. It"s a common story though. And, if they had accounted for "payroll and overhead" as I call it, maybe their haunted house wouldn"t have been as nice.

These sorts of things can all be sort of forecast with relatively simple spreadsheets. Me and a friend did a business plan for a restaurant, and when we did the spreadsheet of daily sales vs. daily costs (and then monthly and weekly), we saw exactly how many sales we needed each day. It was pretty sobering, but we knew what to shoot for, and my friends previous restaurant did phenomenal, so I was confident he could make the sales.

That restaurant ended up not happening because our location was purchased by a real estate agent for her new office. But at least we had our business down in the numbers first.


Your friends might have to just get a loan/credit to cover their payroll and overhead, and roll that back into the spreadsheet. A businesses success isn"t measured by gross revenue, but net margins. If you take the payroll/overhead and look at it now, this haunted house might not have been a financially viable business to begin with.


I am all for entrepreneurship and starting businesses, but you really have to know your numbers. If you want, I could even send you the very simple spreadsheet we used for the restaurant, it would convert nicely for a bar/pub.

But don"t let it deter you. If any of the big business owners on these boards would have been told how many "widgets" they had to sell each day to be profitable, they"d all have a moment of doubt... that is unless they had it in a business plan first. But even then, when you finally see the sales/customers/whatevers it takes, it"s still always sobering.


A small business plan table of contents should be 25% operations, 25% marketing, 50% spreadsheets.